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The Jordanian Electricity Regulatory

Commission: Independence in Theory

or in Practice?

by Y.A. Failat

1

The Jordanian Electricity Regulatory Commission: Independence in Theory or in

Practice?

1. Introduction:

Around the world, a number of countries have created or are in the process of creating

National Regulatory Authorities to regulate their electricity sectors.1 Amongst these countries

is the Hashemite Kingdom of Jordan (Jordan) which has established the Electricity

Regulatory Commission (ERC) in 2002.2 In literature, it was stressed that the independence

of national authorities is amongst the most important characteristics for achieving effective

governance and regulation.3 Accordingly, with national objectives including the development

of the electricity sector in the interest of the public, protection of undertakings,

encouragement of investments and strengthening the role of the ERC in the advancement of

the sector; it is the objective of this paper to assemble the fundamental principles for the

autonomy of the ERC and evaluate whether the current framework is adequate to meet such

objectives. The paper will first provide an overview on the history and development of the

Jordanian Electricity Sector. Then, it will analyse the ERC’s independence from the

government and stakeholders. Finally, it will conclude by evaluating its autonomy with

regard to its decision-making competencies and market sustainability and control.

1 Fabrizio Gilardi and Martino Maggeti, 'the Independence of Regulatory Authorities' in David Levi-Fair (ed),

Handbook on the Politics of Regulation (Edward Elgar Publishing 2010) 201; Sanford Berg, Ali Memon and

Rama Skelton, ‘Designing an Independent Regulatory Commission’ (2000) Public Utility Research Centre,

University of Florida 00-17, 6 http://www.regulationbodyofknowledge.org/documents/004.pdf accessed 18

March 2012. 2 The Jordanian General Electricity Law No.64/2002 (The Electricity Law) Article 6 (A). 3 Jon Stern and John Cubbin, 'Regulatory Effectiveness: The Impact of Regulation and Regulatory Governance

Arrangements on Electricity Industry Outcomes’ (2005) The World Bank 3536; Warrick Smith, 'Utility

Regulators – The Independence Debate’ (1997) The World Bank, Public Policy for the Private Sector Note, No

127; Ioannis Kessides, 'Reforming Infrastructure - Privatization, Regulation; and Competition' (2004) The

World Bank Research Report 28985; Roger Noll, 'Telecommunications Reform in Developing Countries' in

Anne Krueger (ed.), Economic Policy Reform: The Second Stage ( University of Chicago Press 2002).

2

2. The History of the Jordanian Market:

Jordan has witnessed the inauguration of the electricity industry in 1938, when a small

company was established to provide electrical energy in 1947.4 Afterwards, it was converted

into a public shareholding company named the Jordan Electricity Power Company (JEPCO)

which under a concession; generated and distributed electricity to 64% of the total electricity

consumers in the country.5 In 1961, the privately owned Irbid District Electricity Company

(IDECO) was founded to generate and distribute electricity to another 23% of the

consumers.6 Consequently, the government has appreciated the need for a ‘modern and

reliable electricity system’ and thus created the Jordan Electricity Authority (JEA) by virtue

of the General Electricity Law No.21/1967.7 The law stipulates that JEA is a self governing

governmental institution holding a legal personality and independence with regard to

administrative and financial matters.8 JEA enjoyed the right to generate, transmit and

distribute electricity with the obligation to ensure that supply is accessible to the remaining

13% of consumers which are not covered by other licensed companies.9

4 Malek Kabariti, 'Identification of National Energy Policies and Energy Access in Jordan’ (2005) National

Energy Research Group, 14 http://webfealb.fea.aub.edu.lb/fea/research/erg/web/Policy%20Paper%20Jordan.pdf

accessed 19 March 2012. 5 ERC 'Electricity and National Growth' (ERC, 2008)

http://www.erc.gov.jo/English/AboutTheSector/Pages/default.aspx accessed 28 March 2012. 6 IDECO 'Establishment of the Company and its Evolution' (IDECO 2011) (Arabic)

http://www.ideco.com.jo/portal/WebForms/StartOfCompany.aspx accessed 28 March 2012. 7 The General Electricity Law No.21/1967, Article 3; Kabariti (n 4). 8 The Electricity Law, Article 3(1). 9 Ibid, Article 3(2).

3

3. Privatisation and Liberalisation:

With the aim to attract investment, strengthen local capital market, install new generation

plans and implement schematic projects, and cover local demand;10 the electricity sector

amongst others, was subject to a privatisation reform administered by the Executive

Privatization Commission which was created by the Council of Ministers.11 The

administration is in charge of placing broad policy and guidelines which serve the reform by

detaching policy making, regulation and operation.12 The committee envisaged that the

primary policy making role should rest with the Ministry of Energy and Mineral Resources

(MEMR); the regulation to be assigned to an independent Regulation Agency (IRA); and the

investment or operational role to private utilities.13 In 1999, JEA was converted into a public

share holding company called the National Electricity Power Company (NEPCO); whose

activities were regulated by the 1996 Decree No. (10) as amended by the 1999 Decree No

(13).14 As a step towards privatisation, the company was divided into three small companies

as ordered in the Council of Ministers’ Resolution of 1997. NEPCO retained transmission;

distribution was assigned to the Electricity Distribution Company (EDCO); and Generation to

the Central Electric Generation Company (CEGCO) along with other Independent Private

Producers (IPPs).15

10 F. Abdulla and others, ‘Status of Jordan Renewable Energy Sectors: Problems Needs, and Challenges' (Beirut

Regional Workshop on Energy Efficiency and Renewable Energy Technology, Beirut, April 2004) 5.2. 11 League of Arab States, Arab States Business Law Handbook Vol 1 (IBP 2007) 108. 12 Gil Feiler, the Middle East in the New Millennium: Economic Development and Business Law (Brill 2000)

124. 13 Mohamed Arafat, Rashid Aburas and Fawzi Kharbat, 'The Privatisation of the Electricity Supply Industry in

Jordan' (17th World Energy Congress, Houston, September 1998). 14 NEPCO, ‘Historical Glimpse’ (NEPCO, 2011) http://www.nepco.com.jo/english_history.html accessed 28

March 2012. 15 Ibid.

4

4. The ERC’s Establishment and its Justification:

The Privatisation law No.25/2000 provides that the Council of Ministers is responsible for

recommending and taking the necessary steps to establish, monitor and support an IRA which

regulates at least a sector.16 Accordingly, the enactment of the General Electricity Law

No.64/2002 (Electricity Law) not only further restructured and privatised the electricity

sector by unbundling public companies17 but also established the ERC.18 The creation of such

an agency is not a ‘new phenomenon’, IRAs have been widely used in the US and Europe for

regulating a range of sectors including electricity.19 In fact, Brown provides that ‘...the

independent regulator model has become the de facto governance model...in most of the 200

countries that created new national or regional regulatory systems...’20

16 The Privatisation Law No.25/2000 found at http://www.idlo.int/MF/Documents/Regulations/571.pdf , Article

7 (A) 6. 17 Sami Karaki and others, 'Electricity Energy Access in Jordan, Lebanon and Syria' (2004) Working Paper for

"Energy Access II" Working Group Global Network on Energy for Sustainable Development, 10

http://webfea.fea.aub.edu.lb/fea/research/erg/web/Energy%20Access%20Paper_AUB.pdf accessed 22 March

2012. 18 The Electricity Law, Article 6 (A). 19 Katja Johannsen, ‘Regulatory Independence in Theory and Practice : a survey of Independent Energy

Regulators in Eight European Countries’ (2003) AKF Forlgat ‘Institute of Local Government Studies, 15

http://www.regulationbodyofknowledge.org/documents/031.pdf accessed on 15 April 2012. 20 Ashley Brown, Jon Stern, Bernard Tenebaum, Handbook for Evaluating Infrastructure Regulatory Systems

(World Bank Publication 2006) 55-56; Abebe Abebayehu Chekol, 'What is the Advantage of an Independent

5

IRAs are commonly used as they limit political interference and thus, optimise market

efficiency, reliability, service availability and consumer protection and credibility in the

liberalisation process.21 The concept of IRAs under the EU Energy and Gas directives is seen

as a mean to liberalisation.22 This is because, IRAs challenge market failures and safeguard

the investor’s capital by supervising natural monopolies and guaranteeing the investors

access to transmission and distribution networks.23 Furthermore, IRAs can enhance the

regulation of the electricity sector as they offer higher knowledge and expertise24 which is

necessary to meet the demands of the complex electricity sector.25 The essential market

reform and the establishment of the ERC can be further justified when the Commission’s

statutory objectives are read.26 Article 7 (A) of the Electricity Law stipulates the aims of the

ERC which include, maintenance of effective structure; ensuring economic feasibility;

improving and encouraging investment; ensuring safe, reliable and high quality electricity

services; operational compliance with environmental law; ensuring security of supply;

balancing consumer, investor and other stakeholders’ rights; and the overreaching goal of

developing the market from the current single-buyer model to a wholesale competitive as

illustrated in figure 3.27

Energy Regulation in Network-Bound Sectors’ (2010) CEPMLP, University of Dundee

www.dundee.ac.uk/cepmlp/gateway/index.php?news=30883 accessed 15 April 2012. 21 OECD, 'Designing Independent and Accountable Regulatory Authorities for High Quality Regulation’

(Proceedings of an Expert Meeting, London, January 2005) 7. 22 Peter Evans, Liberalizing Global Trade in Energy Services (American Enterprise Institute 2002) 50. 23 S Breyer, ‘Typical Justifications for Regulation’ in Robert Baldwin, Colin Scott and Christopher Hood, a

Reader on Regulation (Oxford University Press 1998) 64. 24 Giandomenico Majone, Regulating Europe (Psychology Press 1996)12. 25 Phillip Andrews-Speed, Energy Policy and Regulation in the People's Republic of China (Kluwer Law

International 2004) 158. 26 Ibid, 156. 27 The Electricity Law, Article 7 (A).

6

5. The Independence of the ERC:

As noted earlier, independence is necessary for the effective governance of the ERC. In

evaluating such autonomy, three dimensions must be considered;28 independence from the

government, independence from stakeholders and independence in decision-making

competencies.29

5.1.Independence from the Government:

Freedom from political pressure and influence is vital to maintain the successful functionality

and credibility of an IRA.30 However, the ERC is an apparatus of the state and for that reason

there are limits to the extent of independence it can enjoy.31 The concept of an IRA has

triggered confusion and misunderstanding amongst politicians as the notion may be seen as

28 Mark Jamison, 'Leadership and the Independent Regulator' (2005) World Bank Policy Research Paper 3620, 3

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=755067 accessed 01 April 2012. 29 These dimensions mirror the collective view of the majority of authors including Fesler’s definition of

independence: ‘Independence of control by the governor and legislature, independence of control over utility

companies and independence in the sense of integrity and impartiality. Anders Larsen and others, 'Independent

Regulatory Authorities in European Electricity Markets' (2006) 34 Energy Policy 2858, 2860; James Fesler,

'The Independence of State Utility Commissions, II’ (1941) 3 (1) The Journal of Politics 42, 61 30 Berg (n 1) 6. 31 Jiabin Hu, 'Assessing the Governance of the Independent Regulatory Agencies in China' (Dphill Thesis,

University of South California 2009) 40.

7

‘awkward, outside of normal governance processes, democratically dangerous or even

unconstitutional.’32 In fact, in Jordan like the Netherlands, assigning full independence to the

IRA from the government may result in unconstitutional outcomes. 33

The 1952 Constitution of Jordan allows regulatory privileges and administrative rights to be

assigned to an IRA but limits the degree of its independence from the government.34 The

Constitution provides that the Council of Ministers ‘...shall be entrusted with the

responsibility of administering all affairs of the State, internal and external.’35 Such

administration may be assigned to a person or body if entrusted by law.36 However, the Prime

Minister and Ministers remain ‘collectively responsible before the chamber of Deputies in

respect of public policy in the state.’37 Upon such delegation a regulated definition of the

relevant duties assigned to the Prime Minister, Ministers and the Council need to be drafted

and ratified.38

It can be seen that the Constitution dictates governmental interference in the affairs of the

ERC and limits its independence. This explains Article 6 of the Electricity Law which

establishes the commission and entrusts it with a juridical personality, financial, and

administrative independence;39 yet, requires it to be related to the Prime Minister.40 It may be

argued that the relational requirement between the ERC and the Prime Minister is included in

the Electricity Law to satisfy the Constitution rather than an attempt in hindering the

independence of the ERC. This is based on the fact that there is little evidence of

discretionary powers or exclusive competencies assigned to the Prime Minister and thus

32 OECD, Proceedings of the First APEC-OECD Workshop on Regulatory Reform: Beijing, China, September

2001 (OECD Publishing 2001) 96. 33 Ibid. 34 The Constitution of the Hashemite Kingdom of Jordan 1952, Article 45 (1), Article 45 (2) and Article 51. 35 The Constitution of the Hashemite Kingdom of Jordan 1952, Article 45 (1). 36 Ibid. 37 Ibid, Article 51. As amended in the Official Gazette No. 1380 of 4/5/1958 and 1396 of 1/9/1958. 38 Ibid, Article 45 (2). 39 The Electricity Law, Article 6 (A). 40 Ibid, Article 6(B).

8

retaining an arm’s length relationship between the ERC and the government.41 The Electricity

Law refers to the Prime Minister and the Ministers mainly in relation to policy making42 and

the appointment of the Commissioners.43

The ERC consists of the Committee and Administrative staff.44 It is administered and

supervised by five Commissioners including the Chief and Deputy Chief Commissioners who

are appointed by the Council of Ministers upon the recommendation of the Prime Minister.45

It is clear that the government is retaining basic control through the power of appointment.

This type of political interference however, will always be naturally found in all areas of

regulation.46 Jordan has chosen this type of leadership to avoid the shortcomings of individual

regulation such as undue personalisation of the process and vulnerability to regulatory

capture.47 Moreover, commission-type leadership offers more extensive expertise and a

thorough standpoint on regulatory challenges.48 The Commissioners are appointed for a term

of four years49 which can only be renewed once.50 The Commissioners are protected as they

cannot be removed by the Prime Minister but may be dismissed in scenarios stipulated in

Article 17 of the Electricity Law which include: expiry of term; resignation; absence from

meetings; inability to perform duties; sentencing for criminal behaviour amongst other

things.51 While such commissioners cannot be dismissed without a just cause, it is doubtful

that they would be reappointed if their views on general policy are not in line with the

41 Katja Johannsen, Lene Pedersen and Eva, ‘Independent Regulatory Authorities - A Comparative Study of

European Energy Regulators’ (2004) AKF Forlgat ‘ Institute of Local Government Studies’, 21

www.akf.dk/udgivelser/2004/pdf/ira.pdf accessed 03 April 2012. 42 The Electricity Law, Article 4 (1). 43 Ibid, Articles 8, 11, and 12. 44 Ibid, Article 6 (C). 45 Ibid, Article 8 (A). 46 Martin Minogue and Ledvinia Carino, Regulatory Governance in Developing Countries (Edward Elgar

Publishing 2006) 74. 47 DPE, ‘Governance and Accountability in the Regulatory Process: Policy Proposals’ (2000) Working Paper,

11 http://www.transport.ie/upload/general/3661-0.pdf accessed 02 April 2012. 48 Ibid. 49 The Electricity Law, Article 12 (A) 1. 50 Ibid, Article 12 (A) 2. 51 The Electricity Law, Article 17.

9

appointer.52 In other words commissioners may take instructions from the appointee in order

to secure their changes of reappointment.53 Therefore, provisions against reappointment are

recommended to prevent Commissioners from acting in accordance with the appointing

authority.54 This is mainly to steer clear of scenarios where commissioners may take

instructions from the appointment to secure their chances of reappointment.55

Jordan is not alone in departing from an agency head or a director leadership. In Europe

commission-type leadership is used in Belgium, Denmark, France, Greece, Italy, Portugal,

Spain and the United Kingdom.56 In most states of the EU, regulators are appointed by

Ministers and hold tenure for 4-7 years which cannot be renewed or be terminated for policy

reasons.57 The US Federal Energy Regulatory Commission consists of five Commissioners

appointed by the President upon the consent of the Senate for a five year term.58 In Russia,

the procedure is similar however; it is only the Chairman which is appointed by the President

whereas the other commissioners are appointed by the government.59 It’s been noted that the

Chairman is seen as a representative of the state and the Commissioners representatives of the

government. This is problematic as the regulator must be a creature of the state rather than

the government.60

Nonetheless, this does not suffice to determine the independence of the ERC; governments

can influence regulators even if they are formally independent.61 They can do so by 52 Francese Trillas, 'Independent Regulators: Theory, Evidence and Reform Proposals' (2010) Working Paper

WP - 860, May 2010 at 12. 53 Larsen (n 29) 2861. 54 Lene Holm Pedersen, 'Transfer and Transformation in Process of Europeanisation' (2006) 45 European

Journal of Political Research 985, 1000. 55 Larsen (n 29) 2861. 56 Larsen (n 29) 2862. 57 Ibid. 58 Fred Bosselman, Joel Eisen and Jimi Rossi, Energy, Economics, and the Environment: Cases and Materials

(Foundation Press 2010) 63. 59 The World Bank, ‘Policy Perspective and Analysis of the Regulatory Regime in the Restructured Russian

Power Sector’ (2004) A Policy Note, Infrastructure and Energy Services Department Europe and Central Asia

Region 36087, 8 http://documents.worldbank.org/curated/en/2004/06/6771239/policy-perspective-analysis-

regulatory-regime-restructured-russian-power-sector-policy-note accessed 12 March 2012. 60 Ibid. 61 Larsen (n 29) 2860.

10

decreasing their budgets or dismissing unwanted regulators amongst other measures.62 Thus,

independence is relative to the IRAs organisational autonomy, particularly, with regard to

their policy and finances.63 On this regard, the government must ensure that the ERC is

afforded with the necessary tools and resources to deliver its objectives.64

Creating a balance between regulatory autonomy and independence with sustainable

financing is easier said than done. There is no ideal answer and the fact remains that most

governments financially contribute to their IRAs; rendering them ‘at least partly vulnerable to

political influence.’65 To diminish dependence on this regard, ring-fenced funds may be

sought.66 Moreover, a well balanced and diverse funding scheme which will enhance the

IRA’s independence is appropriate.67 Like most IRAs,68 the ERC’s principal financial source

stems from fees levied on the regulated companies for the grant of licenses, renewal of

licenses and other miscellaneous and administrative services.69 The ERC may be allocated

governmental funding in cases of emergency or by way of grants and income from

subsidies.70 This hybrid funding mechanism is applied by both the UK and the US.71

Moreover, the ERC has the power and the liberty to implement its decisions, prepare its own

budgets, supervise its financial and administrative affairs, and most importantly decide on its

internal organisation and regulatory structure amongst other powers which illustrate its

organisational autonomy.72

62 Ibid. 63 Johannsen (n 41) 11. 64 BIS, ‘Principles for Economic Regulation’ (April 2011) UK Department for Business, Innovation & Skills, 7

http://www.bis.gov.uk/assets/biscore/better-regulation/docs/p/11-795-principles-for-economic-regulation

accessed 06 April 2012. 65 United Nations Industrial Development Organisation, Training Manual on Sustainable Energy Regulation and

Policymaking for Africa (UNIDO 2006) 5-5. 66 Ibid. 67 Academy for Educational Development, 'Comparative Study of Regulatory Fiscal Autonomy around the

World' (2003) Fiscal Autonomy Review Prepared for the Philippine Regulatory Commission, 1

http://www.globalregulatorynetwork.org/Resources/AEDFiscalAutonomy.pdf accessed 05 April 2012. 68 Ibid. 69 The Electricity Law, Articles 25(A), 25 (B). 70 Ibid, Articles 25 (C), 25 (D). 71 Academy for Educational Development (n 67). 72 The Electricity Law, Article 13 (B).

11

5.2.Independence from Stakeholders:

The autonomy of the ERC is not only dependent on limiting governmental influence but also

analogous to pressure from other stakeholders.73 Pederson identifies three main situations

where the ERC’s independence may suffer.74 Firstly, the regulators may support the

regulated firms as they are drawn to the possibility of obtaining a job promise or receiving

sponsorship for academic research amongst other indirect briberies.75 Secondly, the regulator

may have direct or indirect interest in the electricity sector.76 Thirdly, the regulator can be

defrauded by being delivered false information or rather being subject to ‘information

asymmetry.’77 This is particularly the case in manipulating accounting data which would be

expensive and challenging for the regulator to validate.78

To mitigate the above, the Electricity Law has encompassed provisions which ensure that the

regulator is not easily captured by economic interests of the regulated industry. Upon

appointment, the Commissioners need to meet several criteria which not only relate to

nationality, civil competency and education but also their personal interest in the sector.79

The Electricity Law prohibits the appointment of Commissioners who have, or are related to

a person who has interest in any business related to the electricity sector or engaged in any

related activity.80 Moreover, the appointee cannot be an employee of any of the regulated

firms during the preceding year of the date of appointment.81 The above applies also through

73 Cecilia Ugaz, 'Consumer Participation and Pro-poor Regulation in Latin America' in Cecilia Ugaz and

Catherine Price (eds.), Utility Privatisation and Regulation: A Fair Deal for Consumer? (Edgwar Elgar

Publishing 2003) 90. 74 Pedersen (n 54). 75 Frederic Boehm, ‘Regulatory Capture Revisited - Lessons from Economics of Corruption’ (2007) Internet

Centre for Corruption Research Working Paper 23, 16 www.icgg.org/downloads/Boehm - Regulatory Capture

Revisited.pdf accessed 09 April 2012. 76 Johannsen (n 41) 22. 77 Anthony Ogus, ‘Regulatory Institutions and Structures’ (2002) 73 Annals of Public and Cooperative

Economics 627, 631. 78 Boehm (n 75); Information Asymmetry is defined as the “insufficiency of information of the other party

during the process of transaction, Yuanxun Li and Zhenhai Mei, ‘Research on Risk Aversion of Human

Resources Outsourcing’ in Qingyuan Zhou (ed.) Advances in Applied Economics, Business and Development:

International Symposium, 2011, Dalian, China, August 6-7, 2011 Proceedings (Springer 2012) 56 79 The Electricity Law, Article 11. 80 Ibid, Article 11 (E). 81 Ibid, Article 11 (F).

12

the period of the term,82 and for another year following its end.83 Incompliance with these

provisions results in the dismissal of the Commissioner and an indictment for the ‘crime of

misutilisation of public office or breach of trust, as the case may be, and shall be liable to

reimburse all the sums or benefits gained by him as a result of committing such violation...’84

With regard to information asymmetry, its extent depends on the effectiveness of the

accounting environment. In order to mitigate it and have an economically efficient system for

financial reporting; it is necessary to hold professional independent auditors, and an

independent standard setting and enforcement body.85 In Jordan, the Companies Law

No.22/1997 requires all companies to prepare financial statements every six months and also

publish information such as their balance sheet, profit and auditor’s report.86 The reports must

be prepared in the light of ‘internationally recognised accounting and auditing principles

which can justly’ illustrate its findings.87 Moreover, the Jordanian Securities Commission

Law No.23/1997 and the Directives of disclosures, auditing, and accounting standards No.

1/1998 requires companies to apply International Financial Reporting Standards (IFRS).88

The implementation of IFRSs reduces information asymmetry, smooth the communication

between interested parties, and lower various related costs.89

Furthermore, Information asymmetry may be resolved by competition as it forces market

players to disclose their personal information without the intervention of the IRA.90 Such a 82 Ibid, Article 15 (A). 83 Ibid, Article 15 (B). 84 Ibid, Articles 15 (C) 1 and 17 (G). 85 Etty Wulandari and Asheq Rahman, ‘A Cross-Country Study on the Quality Acceptability; and Enforceability

of Accounting Standards and the Value Relevance of Accounting Earning' (2004) Working paper OECD, 6

www.oecd.org/dataoecd/6/16/33735584.pdf accessed 14 April 2012. 86 The Jordanian Companies Law No.22/1997 Articles 141 and 142. 87 Ibid, Article 195. 88The World Bank, Report on the Observance of Standards and Codes for the Hashemite Kingdom of Jordan

(2004) Accounting and Auditing Assessment (ROSC) 35087, 4 www.worldbank.org/ifa/rosc_aa_jor.pdf

accessed 02 April 2012. 89 Feng Li and Nemit Shroff, 'Financial Reporting Quality and Economic Growth’ (Conference on Teaching and

Learning in Accounting, New York, August 2009) 2. 90 Ahmed Galal, 'Utility Regulation Versus BOT Schemes: An Assessment of Electricity Sector Reforms in

Arab Countries’ (2001) The Egyptian Centre for Economic Studies, Working Paper 63, 6

http://www.eces.org.eg/publications/View_Pub.asp?p_id=10&p_detail_id=165 accessed 14 April 2012.

13

remedy is particularly appropriate when information asymmetry is the result of vertical-

integration and policy-induced restrictions which provide ‘fertile conditions for unequal

distribution of information’ between and operator and a regulator.91 Advances in technology

have significantly increased the possibility of using this option.92 As noted in section 4,

Jordan’s electricity market is still not a competitive one. The progress towards such a market

is supported by the market reforms and the law which aid in tackling information asymmetry.

However, in the meantime, the ERC could use mechanisms such as competition by

comparison or rather competition for the market (auction) as they reduce the firms’

information advantage and mitigate their information rent.93

5.3.Independent Decision-Making Competencies:

The third dimension in evaluating the independence of the ERC is the extent of its decision-

making competencies. There are different types of agencies on this regard, IRAs which are

‘truly regulatory and posses actual decision-making powers and agencies that are merely

consultative.’94 For the ERC to prove to be the former, it must enjoy powers to lay down

rules rather than merely producing services or administrative tasks.95

Article 7 (B) of the Electricity Law grants the ERC with competencies which include the

power to grant licenses; regulate persons engaged in generation, transmission, supply,

distribution and system operation; set tariffs amongst other fees and their calculation

methodologies; decide on technical standards with regard to electric appliances and

installations; partake in implementing environmental standards in accordance with

legislation; provide expert advice and information on the sector; and advocate for a

competitive electricity market.96 Furthermore, the ERC has the power and the responsibility

to settle disputes between the licensees and consumers or between licensees interse.97 Such

disputes may relate to matter of supply and connection of electric power, quality of service

91 Ibid. 92 Ibid. 93 Ibid. 94 Hu (n 31) 44. 95 Johannsen (n 41) 20. 96 The Electricity Law, Article 7 (B). 97 Ibid, Article 9 (F).

14

and electric tariffs amongst other issues related to the sector.98 In 2010, the ERC dealt with a

number 196 complaints relating to energy and supply quality.99

Such a set of competencies and powers is advantageous and illustrates the pragmatic

independence of the ERC in being truly regulatory rather than consultative.100 However, this

is not the case with regards to the competition of the market. The ERC only has the power to

make recommendations to the Ministry on how to achieve a competitive market structure.101

Introducing competition is insufficient; an IRA shall also mandate the prohibition of ‘abuse

of dominant position’ in the market which threatens the sector.102 Setting discriminatory

rates, refusal of service to customers, acts of monopoly or any other acts consisting of abuse

of dominant position are prohibited under Jordanian Competition Law.103 The ERC is

responsible to report any such conduct to the MEMR.104

With regard to decision-making competencies, the ERC is more independent than the Russian

and the majority of the European agencies.105 Russia, which is one of the top producers and

consumers of electric power in the world and has recently restructured its power sector,

uncommonly holds a fractured regulatory jurisdiction in which the authority is distributed

amongst the various agencies whose powers and independence vary.106 For instance, the

Regional Regulatory Commission and the Federal Tariff Service hold limited independence

and autonomy in setting tariffs as the Ministry of Economic Development and Trade will play

the final and discretionary role on such tasks.107 Additionally, unlike the ERC and other

98 Ibid, Article 18 (A). 99 Electricity Regulatory Commission, ‘Annual Report 2010’ (2011) 13

http://www.erc.gov.jo/English/Publication/Documents/annual%20reprot%202010.pdf accessed on 01 March

2012. 100 Brown (n 20) 64. 101 The Electricity Law, Article 7 (B) 7. 102 Brown (n 20) 65. 103 The Jordanian Competition Law No.33/2004, Article 6. 104 Ibid, Articles 48 (A), 48 (B). 105 Please see Appendix 1. 106 The World Bank (n 59) 6; Energy Information Administration, 'Russia' (EIA 2012)

www.eia.gov/countries/cab.cfm?fips=RS accessed 15 November 2012. 107 Ibid.

15

agencies, Russian regulators are assigned powers via a sub-delegation of the government.108

In Europe, most regulators are able to set tariffs, issue licenses and settle disputes but some

hold only an advisory role on certain matters.109

6. Conclusion:

This paper has only provided a brief summation on the independence of the ERC. It is clear

that the ERC enjoys considerable autonomy from the government and stakeholders.

Moreover, it enjoys independence with regard to its administration, finances and decision-

making competencies. The analysis however, was based on theory and academic principles

which may be incompatible with the pragmatic view of circumstances. The ERC must be

factually independent as it ‘may adopt all formal trappings of an independent regulatory

entity, while behind the legal facade, the [government] retains effective control over the

fundamental regulatory decision’ such as tariff levels.110 All in all, it may well be said that, to

a certain extent and from a first level planning perspective, effective legislation does exist in

Jordan and it is adequate to provide the ERC with the necessary autonomy in order to meet

national objectives and protect national interests. Such effective legislation could be further

supported by implementation directives and instruments as well as coherent inter-

governmental dialogue.

108 Ibid, 11. 109 See Appendix 1; Anders Larsen and others, 'Independent Regulatory Authorities in Europe (SNF-SESSA

Conference: Harmonising Effective Regulation, Bergen, March 2005) 15. 110 The World Bank (n 59) 3.

16

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22

Appendix.1

Decision-Making Competencies Comparative Schedule:

Country Tariffs Licensing Disputes Enforcement

Austria F P P N

Denmark F N F F

Finland F F N F

France P N F F

Greece P P F F

Ireland F F F F

Italy F P F F

Jordan F F F F

Luxemburg P N No Answer F

Netherlands F F P F

Portugal F N F P

Russia P No Answer F P

Spain P P P N

Norway F F F F

Sweden F F F P

UK F P F F

F: Fully competent; P: Partly competent; N: Not competent.

Sources:


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March 2012.